Yes, debit cards automatically convert currency for international transactions, using rates set by networks like Visa/Mastercard, but your bank adds its own fees and markups, and you might be offered a choice (Dynamic Currency Conversion, or DCC) to pay in your home currency, which is usually a bad deal. To get the best rate, always choose to pay in the local currency, not your home currency, when prompted at a merchant or ATM, and be aware of your bank's foreign transaction fees, often 1-3%.
Use your credit or debit card when possible
But be aware that while your card's issuer bases its exchange rate on market conditions, it does set its own exchange rate for transactions. This can be updated daily based on market rates.
When you choose to pay in the local currency, Visa or Mastercard will set the exchange rate. Your bank might also charge a fee to carry out the transaction.
If you've ever hesitated, don't worry. It's usually more cost effective to pay in local currency using your debit card. But, most of us take a combination of travel money and our debit or credit card with us when we jet off on holiday. With so many different payment options, it can get confusing.
With the Wise travel money card you can get an up to 87% better exchange rate and lower fees than your bank. If you have the local currency in your account, the Wise travel money card will use it. If not, it will auto-convert your money at the current rate, for a tiny fee.
This is because if you choose the local currency, your bank or card provider will do the currency conversion and apply the exchange rate. Visa and Mastercard tend to use very competitive exchange rates, and you can also check them online on the day you're making the transaction.
Key benefits of using a debit card abroad
Debit cards are a solid option for cost-aware travelers, as they offer direct access to your bank account without the potential for overspending. One of the key benefits is the ability to withdraw cash from ATMs with relatively low fees, depending on your bank.
Our Nerds say: “When paying with a credit card abroad, stick to cards that don't charge a foreign transaction fee. To avoid conversion fees, pay in the local currency rather than U.S. dollars.
The 2/3/4 rule is a guideline, primarily used by Bank of America, that limits how many new credit cards you can get: no more than 2 in 30 days, 3 in 12 months, and 4 in 24 months, helping to prevent over-application and manage hard inquiries on your credit report. While not universal, it's a useful benchmark for responsible card application, though other banks have different rules (like Chase's 5/24 rule).
To avoid high fees when withdrawing cash abroad, try to use ATMs from well-known banks, as they usually offer better rates and lower fees. Limit how often you withdraw cash to save on fees. You should also check if your bank has partnerships with international banks, as some offer cheaper or free withdrawals.
You can typically save by opting to spend in the local currency. This would mean, for example, choosing euros in Spain or rupees in India. When you choose to pay in the currency of the country or region you're in, Visa or MasterCard will set the exchange rate.
You can exchange currency at local bank branches, especially if you need larger amounts than an ATM will dispense. You'll typically find better rates than at airport kiosks and other tourist spots this way. Make sure to bring your passport - most banks require it for currency exchange - and ask about fees upfront.
For foreign currency transactions converted by Visa/Mastercard, a conversion factor of 1% is applied on the converted amount. For foreign currency transactions converted by UnionPay, a conversion factor of 0.6% is applied on the converted amount.
As well as helping you control expenditure, cash euros allow you to lock in a rate, while avoiding high foreign payment charges and fees. There's also no need to worry about card fraud, and if you buy from a reputable seller like eurochange, you won't face hidden charges or fees when getting your euros.
What Is the 15/3 Rule?
Major banks offering no foreign transaction fees on debit and/or credit cards include Capital One, Charles Schwab, Discover, and HSBC, with options like Capital One 360 Checking, Schwab Bank Investor Checking (which refunds all ATM fees), and Discover Debit providing fee-free international spending and ATM use, though some may have card acceptance limitations or require specific account types. Other banks like Ally, Fidelity, and USAA also offer accounts that waive these fees, making them great for travelers.
What is a foreign transaction fee? A foreign transaction fee is a charge assessed by your credit card issuer on transactions made in any currency other than U.S. dollars (USD). This isn't just limited to brick-and-mortar locations abroad. It also includes websites based outside of the U.S.
Cons of debit cards
It's not essential, but it helps our fraud detection systems to know in advance that you're travelling abroad. Find out how to get it at How do I get the mobile banking app?